Nvidia’s AI Chip Exports to China Will Come Back to Haunt It

[The Bleeding Edge]( Nvidia’s AI Chip Exports to China Will Come Back to Haunt It By Colin Tedards, Editor, The Bleeding Edge The Tech Cold War between China and America is ratcheting up... On Tuesday, the U.S. Commerce Department announced new rules to close loopholes on exports of advanced semiconductors – aka chips – to China. This comes roughly a year after the U.S. government first launched export controls on chips the ruling Chinese Communist Party can use for military purposes. And it could tip the balance of power toward China and away from the U.S. and its allies. According to a recent review by Australian defense experts, “China's military build-up is now the largest and most ambitious of any country since the end of the Second World War.” And the Chinese are putting a strong emphasis on AI-assisted weapons systems. These include autonomous aerial- and ground-based drones. The Chinese military can use these for reconnaissance, surveillance, and combat missions. China is also investing in AI to jam enemy radar and communications systems… as well as to augment its offensive and defensive cyberwarfare capabilities. Estimates put the Chinese government’s AI spending at $150 billion by 2025. The new measures will close loopholes the Chinese have exploited. And shockingly, they’ve done it with the help of leading U.S. chipmaker Nvidia. Its shares are up 188% this year. But Nvidia has played fast and loose with America’s national security interests. Now, this threatens to send its shares plummeting. Recommended Link [The “Amazon Secret Royalty Program” Can Help Anyone Retire Like Royalty]( [image]( A unique type of investment could help you make more money than you will need for the rest of your life. It’s what we call the “Amazon secret royalty program.” It’s an income stream that allows you to collect $1,000s… $10,000s… or more every year! In fact, Business Insider says this type of investment could provide “enough money to live off of each year, without having any other retirement plan...” “Royalties” are the most exciting investments in history. Put simply, they’re periodic payouts… That could deliver all the money you need for your retirement… While these “royalties” are different from traditional royalties, just one could hand you enough income to live life on your own terms. And it only takes a few minutes to set up. [Learn how to collect your first payout as soon as December 10th.]( -- China-Specific Chip Washington’s initial export ban was intended to stop China from accessing high-end chips, including Nvidia's H100 chip. It’s the AI-ready chip OpenAI uses to power ChatGPT. And it’s the premier AI chip on the market today. But after Washington put export controls in place last year, Chinese tech firms found workarounds… with Nvidia’s help. To get around the export ban, the California-based company created a China-specific chip – the A800. It’s based on the same architecture as the H100. But it complied with U.S. export rules and still provided ample AI computing power. And Chinese tech companies snapped them up. In August, Chinese tech giants – including Bytedance, which owns TikTok, Baidu, Alibaba, and Tencent – scooped up $5 billion worth of A800 chips. The Commerce Department aims to put an end to these workarounds with the new restrictions announced this week. They ban exporting all high-performance AI chips that exceed certain processing speed and density thresholds, regardless of model or brand. Nvidia tried to downplay the financial consequences, saying that the restrictions would not immediately affect earnings. But I’m not buying it. And neither should you. Recommended Link [Viral Silicon Valley video reveals new AI cash cow]( [image]( Did you see this new viral AI video? On camera, one of America’s top tech analysts, Colin Tedards, reveals the next AI cash cow… A groundbreaking technology The Wall Street Journal calls, “the lifeblood of AI.” It has nothing to do with Nvidia or any popular tech company. But firms like Tesla, Microsoft, and OpenAI – the company behind ChatGPT – are buzzing about this groundbreaking technology right now. For early investors, this tiny new device could unlock $200 trillion in AI profits. [Click here to see this viral video before it gets taken down.]( -- Accounting Tricks Sure, none of this will matter when Nvidia reports its third-quarter earnings in November. But to fully grasp how the ban on sales to China will impact Nvidia, you must understand the accounting tricks the company uses. Nvidia is a “fabless” semiconductor company. It designs its chips. But Taiwan Semiconductor Manufacturing Company (TSMC) makes them. TSMC is the world’s largest chipmaker. It has a client list a mile long – including Apple, Google, Intel, AMD, and Tesla. TSMC must secure the raw materials and equipment to make the chips its customers order. This requires Nvidia and other customers to make binding commitments to buy a specific amount of chips. As demand for Nvidia’s AI chips has surged, it needs to make larger commitments to TSMC. Nvidia calls these “future purchase commitments” on its financial statements. To give you an idea of how much the company has upped these commitments, look at just the past three quarters… - January 29, 2023 – $4.92 billion - April 30, 2023 – $7.27 billion - July 30, 2023 – $11.15 billion That’s a 126% leap since the start of the year. And we won’t know its latest commitments until Nvidia reports earnings in November. Critically, these are what are known as “off-balance-sheet” commitments. Nvidia has to disclose the commitment. But it can book sales and profits as though these commitments don’t exist. When sales are strong, it’s not a problem for Nvidia. But that hasn’t always been the case. Recommended Link [Financial Adventurer’s Shocking Find in the Desert]( [image]( He was nearly jailed in the former Soviet Union. Caught a rare bacterial infection in the Amazon jungle. Stranded on a catamaran in the middle of the Atlantic. Yet nothing could prepare him for what he found in the world’s hottest desert (record temperature 177.4 degrees). [Watch the shocking video here.]( -- Dangerous Game In 2020 and 2021, Nvidia made large commitments to TSMC to make chips for gaming and crypto mining. When demand plummeted in 2022, Nvidia tried to back out of these commitments. But TSMC didn’t budge. And shares of Nvidia plummeted nearly 50% in 2022, in part because it misjudged demand. Sure, Nvidia will pivot supply to the U.S. and other countries in 2024 as the new export rules choke off its supply of chips to China… But as I [showed you]( on Monday, it’s made poor decisions with its domestic sales, too. Instead of allocating its chips to Amazon, Google, Microsoft, and other major players, it chose to send a chunk of that supply to startups it’s taken a stake in. That led these tech giants to roll out their own custom chips to reduce their reliance on Nvidia’s chips. Without China buying up extra supply of Nvidia’s silicon… and with competition closing in from well-resourced Big Tech companies… Nvidia is playing a dangerous game. One it already lost when the crypto mining bubble burst just a few years ago. This is why I recommend you avoid Nvidia stock. Priced for Perfection As regular readers will know, I believe Nvidia is priced for perfection. It’s so richly valued that the slightest disappointment in sales and earnings results will send shares tumbling. Today, investors are willing to spend three times as much for each dollar of Nvidia’s earnings compared with its peers. And with sales of its A800 chips to China no longer an option… and many of its Big Tech clients making their own rival chips… it will be hard to achieve perfection. But this is great news for folks who own shares in a rival chipmaker set to become the leader in the industry. It trades at a future price-to-sales ratio of 30 versus Nvidia’s price-to-earnings ratio of 100. Its new AI chip outperforms Nvidia’s H100. It’s all in the new presentation I’ve put together for you and your fellow readers. As I show, this smaller company will power the next wave of AI profits. And it’s caught the eye of legendary trader Ken Griffin… hedge fund billionaire David Tepper… and value investor David Einhorn. It’s only a matter of time before everyone starts piling in… because this company is about to unveil the most powerful AI chip in history. To get ahead of the pack [go here to find out more](. Regards, Colin Tedards Editor, The Bleeding Edge --------------------------------------------------------------- Like what you’re reading? Send your thoughts to feedback@brownstoneresearch.com. IN CASE YOU MISSED IT… [PhD Economist Makes Terrifying 2024 Prediction]( She’s on a first-name basis with officials at the Federal Reserve… The World Bank… And the IMF… But today, she’s breaking all the rules. As you’ll soon see, [her latest findings]( could be the biggest discovery since she walked away from her 15-year career on Wall Street. A blockbuster story coming to light. Deemed too 'DANGEROUS' for the U.S. Congress to hear… And ignored by CNN, FOX, CNBC, and BBC – Today, Dr. Nomi Prins – a former investment banker turned industry whistleblower – is being interviewed to expose [the shocking truth]( about the U.S. economy. She says: "We're about to hit America’s ‘Breaking Point.’ The harsh reality is, the financial system is breaking. 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